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Web Shop Industry: 2,000 Jobs Will Be Lost Due To Tax Hikes

Deputy Prime Minister Peter Turnquest in the House of Assembly. File Photo: Terrel W. Carey/Tribune Staff

Deputy Prime Minister Peter Turnquest in the House of Assembly. File Photo: Terrel W. Carey/Tribune Staff

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The web shop industry yesterday warned that 2,000 jobs will be lost, and 75 per cent of its locations will close, if the Government follows through with aggressive triple-digit tax hikes.

The Bahamas Gaming Operators Association, the sector body, intensified its fight against the Minnis administration’s new ‘sliding scale’ tax structure by producing a study showing that the main casualties of the so-called “wipe out” will be ordinary Bahamians - its employees and patrons.

The research, by 10-year gaming industry veteran and accountant, Gavin Hamilton, warned that the tax ‘grab’ will generate much less than the $35 million anticipated revenue increase while producing unintended consequences counter to the intent behind the sector’s 2015 ‘legalisation’.

He suggested that the increases, and their impact on the seven licensed web shop chains, would drive 30 per cent of the industry’s existing customer base to an ‘underground black market’ which already accounts for 15 per cent of domestic gaming business.

Mr Hamilton’s report, ‘Review of the Gaming House Operator (Amendment) Regulations 2018’, said the revised tax structure would place the Bahamas’ gaming industry as “among the highest taxed” in the world.

It added that the inevitable industry response would be a mass downsizing of staff and physical premises, with the impact spreading far beyond the immediate industry to include landlords, the Government’s revenues and other businesses. In particular, the study suggested the industry’s marketing spend would fall by 30 per cent.

“We estimate that in order to restore profitability to the existing retail estates, there will be job losses of 2,000 jobs; store closures of up to 192 venues; a reduction of marketing spend by around 30 per cent in line with the decline in market size,” the report said.

“The net impact of this is that the overall tax take will increase by only $27 million, equivalent to a 26 per cent flat tax today, but at the cost of significant loss of employment and a backward step towards a large unregulated market, the very thing the original 2014 regulations were introduced to avoid.

“We strongly urge that the Government reconsiders the current proposals before it does long-term and irreversible damage to a vibrant, regulated market that provides significant employment in the region.”

In percentage terms, the study suggests that 71.4 per cent of the web shop industry’s total workforce, and almost three-quarters of its current 257 locations, will be lost as a result of the Minnis administration’s determination to fill a $400 million ‘gap’ in its Budget revenues. It adds that the Government’s tax take is likely to be “35 per cent lower than anticipated”.

The Government, though, has given every indication that it views the web shop industry as a tempting tax target, with the new ‘sliding scale’ structure designed to double its annual tax take from a sector that also includes the foreign-owned casinos.

They have not been subjected to such a tax structure, but K P Turnquest, Deputy Prime Minister, has made clear the Government’s position that web shops must contribute more to the Treasury given the perceived anti-social effects of gaming - especially the sucking of money out of Family Island communities, and the redistribution of wealth into the hands of a few in Nassau.

Sebas Bastian, Island Luck’s principal, declined to comment yesterday on whether the industry will meet with the Government after its attorney, Alfred Sears QC, last week issued a seven-day ultimatum for it to negotiate with the Association or face legal action. That deadline expires tomorrow, and the Hamilton report’s release suggests there has yet to be a meeting of minds.

The research reiterated that the Government’s tax rises were counter-productive, and threaten to drive domestic gaming back into the illegal ‘black market’ where it thrived prior to legalisation. Mr Sears’ letter warned that such developments could subject the Bahamas to additional scrutiny by the international bodies that have previously ‘blacklisted’ its financial services industry for alleged regulatory weaknesses.

“Precedent from international studies shows that the higher the tax rate, the lower the ‘capture’ rate,” the Hamilton report said. “Customers are likely to move to black market operators where black market operators can offer better prices (higher rebates, lower take out rates)

“The rule of thumb used is that the percentage of the market that will switch to the black market, or substitute for other products, is equal to the overall tax rate. At an effective average rate of 44 per cent, this suggests that the market will decline by 30 per cent following the tax increases (the black market already accounts for 15 per cent).”

Thus the web shop industry’s argument is that the Government’s ‘tax grab’ will result in exactly the opposite of what it intends - revenues below expectations; increased unemployment; and an industry that has either been driven largely online or into the ‘black market’.

The Hamilton report estimated that, presently, employee costs account for almost 50 per cent of the web shop industry’s fixed costs. It pegged collective industry profits at around $47 million, with profit margins at 24 per cent - a ratio the report said was “in line with the benchmark for other listed gambling operators” once taxes were factored in.

With domestic gaming industry employment levels almost three times’ higher per capita than markets such as the UK, the Association-commissioned research said the revised tax structure would make the Bahamas’ tax rate “24 per cent higher than world average”.

“The increasing tax rate penalises scale, and gives small operators an unfair cost advantage,” the Hamilton Report added. “This risks having unintended consequences, as nobody will be able to reach a scale that permits them to generate an economic return, which will make the market fragile and risk reckless behaviour by sub-scale operators.

“The only way existing licensees can react is through aggressive cost-cutting, which will fall firstly on employees and premises rationalisation.”

The present tax structure requires web shop operators to pay 11 per cent on taxable revenue or 25 per cent of EBITDA (earnings before interest, taxation, depreciation or amortisation), whichever is greater.

However, under the proposed new ‘sliding scale’ they will pay:

  • Up to $20 million in revenue, a rate of 20 per cent.
  • Between $20 million and $40 million, a rate of 25 per cent.
  • Between $40 million and $60 million, a rate of 30 per cent.
  • Between $60 million and $80 million, a rate of 35 per cent.
  • Between $80 million and $100 million, a rate of 40 per cent.
  • Over $100 million, a rate of 50 per cent.

And, in a nasty twist as far as web shop operators are concerned, the Government has also imposed new taxation on gamblers themselves rather than the sector. Patrons, from July 1, will have to pay a 5 per cent Stamp Tax on both their web shop deposits and non-online games/digital sales.

The Hamilton report said the effect of all this will be to increase the web shop industry’s effective tax rate to 44 per cent of gross gaming revenues (GGR), which it branded “among the highest taxes payable in the world”.

“This has significant risks,” it added. “The increase in tax take will be offset by a large migration of customers from the regulated market to the untaxed, unregulated market. We estimate the market will decrease by up to 30 per cent.

“Tax take likely to be 45 per cent lower than anticipated when market reduction and spill-over impact on NIB contributions, venue licence fees taken into account. Customers will be forced to the unregulated market, which will not be subject to the same levels of oversight in protecting the vulnerable and preventing crime.”

Tackling claims by Mr Turnquest that gaming taxes were as high as 80 per cent in some jurisdictions, the report said this only applied to monopolies such as the UK’s national lottery.

“In contrast, the proposed progressive tax rate structure (up to 72 per cent marginal effective rate) makes it impossible for Bahamian operators to absorb increased taxes through increased scale, as smaller operators have a material cost advantage through lower taxes,” the Hamilton report added.

“Our analysis suggests that the rate of increase is from a low of 238 per cent to a high of 453 per cent - materially higher than publicly disclosed. Multiple international studies have shown that punitive taxes drive customers into the unregulated, black market, where they are far more likely to fall victim to unscrupulous operators.”

Comments

DDK 10 months, 3 weeks ago

They will find other jobs if and when the private sector recovers from its near annihilation due to the proliferation of gaming shops. Do The Bahamas a favour and close all your doors.

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proudloudandfnm 10 months, 3 weeks ago

Sounds like the perfect opportunity to start a national lottery...

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joeblow 10 months, 2 weeks ago

If they have the political will, the government can correct any job losses from web shop closures by hastily addressing illegal immigration and below the radar employment. The fewer immigrants we have doing jobs Bahamians can do, the lower unemployment rates would have to be!

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Dawes 10 months, 3 weeks ago

If the webshops would just show their financial statements showing how profitable they are or are not then we can make an informed decision. Apparently they make $47 million in profit a year (per the above), seems quite a good profit to me. Looking at AML they made almost $7 million in 2016 (per their online audited report) and are the 2nd largest food store (i think). That $47 million divided equally among the 8 webshops is $5.875 million, but at a guess the smallest makes considerably less , so the largest makes more then AML. AS such i reckon they make good enough money to stay in operation. Will jobs be lost, most probably, will it be 2,000 no (well not yet, it will increase as more people gamble online so the physical buildings are not needed). If it is 2,000 they will be cutting their nose off to spite their face as customers will have no where to gamble.

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Sickened 10 months, 3 weeks ago

That $47 million a year profit you speak of is so incredibly low. The big numbers criminals pull that in every single month... without fail. These criminal scumbags crying foul is a joke. They didn't open all of these shops to employ Bahamians, they opened them to make more money. Don't be fooled by these legitimized criminals!!

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DonAnthony 10 months, 3 weeks ago

Yes, please close these webshops down and let us institute a national lottery where the Bahamian people benefit from 100% of the profits.

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TalRussell 10 months, 3 weeks ago

Ma Comrades, the numbers man's sounds likes they're competing against 12% VAT won's the Academy Awards Best Actors. Comrade spokesman's Gavin is back with refresher scare the voters tactics they used during regularized referendum which the NO majority voters scoffed at by rejecting numbers regularization..... But didn't the numbers man's still soon after not send home workers after becoming regularized... something about more tech savvy worker replacements were necessary for modernization. Voters still think the numbers man's must still settle not paying taxes on hundreds millions dollars wagers cash they raked in prior regularization.... so be careful how far you push your LUCK with new red shirts government... that is unless you're cool being shut down overnight....on this one the reds have the full support of the 91,409 voting red 10th May 2017. .

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screwedbahamian 10 months, 3 weeks ago

The Webshop boys bought out the previous Government for very little ( couple of thousand dollars in their pockets) and are trying to bully the present Government into meeting their demands. SORRY IT WILL NOT WORK. Closed your doors, pack up and be gone. Its a NATIONAL LOTTERY TIME, where the profits will help fund education, Health and the old pensioners.

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ThisIsOurs 10 months, 3 weeks ago

Ok fine, if the fear is that each has to reduce its costs, remove the moratorium and let more small operators in and with all the location closures, enforce the zoning requirements and control the number of locations.

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proudloudandfnm 10 months, 3 weeks ago

So they ask a ten year gaming industry veteran to do a report on the impact of a new tax?

Lol. Ok....

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sheeprunner12 10 months, 3 weeks ago

This is a "see who blinks first" situation right now ......... KPT, please do not back down from these thugs.

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OldFort2012 10 months, 3 weeks ago

2 points need to be made:

  1. If they downsize because less people gamble: GOOD. Up the tax even more. Let the leeches find real jobs.

  2. If they downsize because it goes underground: who the hell is going to run these underground operations? Surely these same people you let go, no? Arrest them and send them all to break rocks on Inagua.

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realfreethinker 10 months, 3 weeks ago

So they announce the increase taxes last week and in less than a week a "study" was done to determine that "2000" jobs will be lost? What kind of hatchet job study could produce that info so quickly. Base on the 10 years expert info the gov will only collect $35mil dollars on a $400mil a year industry, less than 10 percent,what is he complaining about. These clowns really think we are all fools.

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Well_mudda_take_sic 10 months, 3 weeks ago

We must think about the many more jobs that will in fact be saved by government putting these low-life racketeering criminal thugs out-of-business, consistent with the wishes of the vast majority of voters. We need that National Lottery and a repeal of all the legislation that has allowed the money laundering punks like Sebas Bastian and Craig Flowers to spread the tentacles of their criminal enterprises throughout our country. They must be cut off from our local banking system before global financial regulators make it impossible for legitimate banks to conduct banking business within and from the Bahamas. Our legitimate banks have become saturated with Bahamian dollars because the criminal empires run by the numbers bosses have choked off all residential and commercial mortgage lending business thereby forcing banks to downsize and rely more on fee income. The illegal activities of these low-life thugs are literally killing our legitimate economy and destroying generations of Bahamians by getting them hooked on spinning numbers. These blood-suckers must be shutdown and there's no way in today's world of tight banking regulations that they will be able to survive underground for long, especially if a National Lottery is established.

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TalRussell 10 months, 3 weeks ago

Ma Comrades, until red shirts individual MP's comprising the 35 elected House 10th May 2017, along with red shirts Party are prepared to peoplepublic open their well hidden campaign books, the Party’s control of information and records is so extensive that it is impossible to prove or disprove anything about who paid who get red shirts elected and by what sums monies. The 35 campaigned on commitments brungs full transparency And, don't you thinks good place start is with full people public disclosure on numbers monies injected 2017 general election campaign... until then, how do we the peoplepublic, knows for sure how red shirts 35 MP's will react numbers matters? There is lips service and there is representation da people obligations... Time 35 stand up House to peoplepublic disclosures from where all campaign monies originated from - directly/indirectly?

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Porcupine 10 months, 3 weeks ago

I wonder if the web shop owners and their lawyers read the online comments here in the paper? If they did, and they were decent human beings, they would and should crawl under a rock and shut their mouths. They are the lowest of the low.

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Well_mudda_take_sic 10 months, 3 weeks ago

Keep or raise the tax rates currently being proposed in the 2019/20 budget for the web shops and at the same time establish a National Lottery totally exempt from all input/output VAT of any kind with the requirement that all net proceeds therefrom must be segregated by way of separate bank accounts and applied towards defraying public healthcare and public education costs . Then proceed to repeal in its entirely all of the legislation purporting to have 'legalized' the money laundering and other illegal activities of the racketeering numbers bosses and their criminal enterprises thereby ensuring they do not have access to our local banking system and the global banking system. Once this has all been done, there will be no underground gambling environment of any significant import or consequence to our national well-being. It's really as simple as that. Alfred Sears can argue discrimination on behalf of his partners, I.e. the numbers bosses like Sebas Bastian and Craig Flowers, until he is blue in the face. But there is nothing in 'valid' laws, i.e. laws not wrongfully forced or otherwise foisted on a society by corrupt politicians, that gives criminal thugs and their illegal activities the right to somehow be legitimized against the will of the people/voters, and to the detriment of our nation in the eyes of global financial regulators.

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TheMadHatter 10 months, 3 weeks ago

"The web shop industry yesterday warned that 2,000 jobs will be lost, and 75 per cent of its locations will close, ..."

LOL. Thanks for that. I've been kind of depressed lately and needed a good laugh.

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TalRussell 10 months, 3 weeks ago

Good see Ma Comrade bloggers are capable of self imposing higher intelligence debate over all matters Numbers - without tossing Character assassination smoke bombs... just goes prove we can hold and share independent thought. Amen! .

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JohnDoes 10 months, 3 weeks ago

This comment was removed by the site staff for violation of the usage agreement.

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sheeprunner12 10 months, 3 weeks ago

This is a threat to the Government ......... They will go underground??????? ........ Shows the Numbers Cartel criminal intent (as before).

It will give the Government all the ammunition it needs to get rid of the Numbers Cartel and introduce a National Lottery (if it wants to).

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The_Oracle 10 months, 2 weeks ago

I agree with the National lottery, once it is run better than the national finances. Already Detroit cannot pay out winnings in their Lottery. (A U.S. city run much like the Bahamas.) Meanwhile these legitimized clowns get no sympathy from me.

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PastorTroy 10 months, 2 weeks ago

CALL THEIR BLUFF!!!! #TheyBluffin #JustDoIt.

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sheeprunner12 10 months, 2 weeks ago

So true ............ Is the Government in receipt of REAL financial records from these webshop bosses .......... certified by reputable auditors??????

No-one can really listen to that slickster ............ Gershon Major

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licks2 10 months, 2 weeks ago

I did a review of the "problem" of governments taxing gaming very hard. . .it is all over the world. . .he gamers are making a boat load of free money. . .free money is the exact name they call their winnings. . .no games are getting away with 11 or 12% except in the Bahamas!! Number boys do nothing for the nation except suck the poor dry. . .then government has to take care them same "swung poor". . .social services and everything have o put out more to save those same persons that the web shops have "exploited"! I agree, if they are going to "goosie" the poor and live like kings. . .tax they hips like kings!! Let them go rogue. . .then the proceeds of crime act will clean them out and send them to jail!!!

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JohnDoes 10 months, 2 weeks ago

Amazing how they remove comments when you hit nails on the head. A sign that they know what is happening.

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DaGoobs 10 months, 2 weeks ago

We have plenty quasi Socialism in this country. People don't want to pay taxes, customs duty, government fees but we expect free medical care at PMH from motivated and happy doctors and nurses who are paid well and have the best and latest equipment to work with, smooth roads to ride on, big salary with all kind of perks and pension, police to come fast to our house in new cars when we call, government buildings with the best computers and other equipment and no mold, happy teachers in well maintained schools with all kinds of technology and materials to teach with. The government machine only works if it has lots of money to cover the costs of all the requirements, perks, benefits, etc. That comes from the payment and collection of taxes. If gamblers got money to throw away then let the government get as much of that as possible. The 5% on webshop deposits is coming out of the customers money, not webshops revenues. If Bahamas is joining WTO by 2019 then customs duties will largely have to disappear and be replaced by other forms of taxation, particularly ones that the government is better able to actually collect.

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sheeprunner12 10 months, 2 weeks ago

Indeed ............ The Bahamas joining WTO means more VAT, more corporate tax, more RPT,............. and Income Tax (maybe on a sliding scale).

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